Reality is better. If you believe bonds are
boring, risky, and complex, you’ve got a
ton of company among retail traders. In
reality, bond futures markets are actively
traded, very liquid, have narrow bid/ask
spreads, and provide a direct way to speculate on the bond market. Better yet, the
value of the bond futures markets equals,
or surpasses, equity markets. Great characteristics, all. Since reality is way more
fun, let’s unravel the bond market mysteries and some of the mechanics behind
Treasury futures.

WHAT ARE THEY?

A Treasury futures contract, like any futures
contract, is an agreement between a buyer
and seller to buy or sell an underlying at a
certain price for delivery and payment at a
specific date in the future. With Treasury
futures, the underlying asset is a U.S. government–issued coupon security: bonds,
notes, or bills.

Treasury futures contracts come in five
flavors with different maturities. Figure 1
shows these products and their price movement values. Think of it as a cheat sheet.

Most bond futures contracts have a

$100,000 face value. One exception is /ZT,
whose face value is twice as much. It has the
shortest duration, which means those contracts won’t generally be impacted by interest rate movement. In other words, /ZT
doesn’t move as much as the others. On the
other hand, /ZB, /ZN, and /ZF are more
actively traded. If you bring up /ZB on your
thinkorswim® platform from TD Ameritrade,
and choose to display Active Only, the active
contract will be identified.

WHAT’S YOUR EXPOSURE?

Bonds are quoted in terms of their $1,000
multiplier. If the June /ZB contract is
trading at 144’04, its value is (144 + 4/32),
which works out to 144.125. Your exposure would be the contract multiplier
$1,000, multiplied by $144.125, which
works out to $144,125. But you don’t need

THINKING
ABOUT
TRADING
FUTURES?

To apply for
futures trading at
TD Ameritrade,
your account
must be enabled
for margin, have
Tier 2 or Tier 3
options trading
approval, and
have Advanced
Features enabled. Log in to
your account at
tdameritrade.
com, and under
the Trade tab,
go to Futures &
Forex for more
information.

FIGURE 1: Treasury futures contract specs.They’re all a bit different, but if you know the point values and
tick values of each, price movements become easier to digest. For illustrative purposes only.

COST OF ONE /ZB CONTRACT = $2,700

INITIAL MARGIN FOR /ZB

(per $100,000 notional)

$2,700

MAINTENANCE MARGIN
(per $100,000 notional)
$2,150

HERE’S HOW MARGIN WORKS

If /ZB moves up from 143’ 24 to 144’ 24, or one
handle, account value increases by $1,000 to